Last month, Motley Fool co-founder and CEO Tom Gardner traveled to Austin, Texas, to interview John Mackey, founder and co-CEO of Whole Foods Market (NYSE: WFM ) .
Whole Foods has been a tremendous growth story since its start in 1980 as a single, small store; it’s now a $17 billion organic and natural grocery store market leader with more than 300 stores.
One key aspect of its success has been its workplace culture, which is frequently cited as tops in its industry. Watch the video to see why Mackey believes that culture is a competitive advantage -- and something investors may want to pay attention to. (A transcript is provided below; running time: 2:44.)
Tom Gardner: What one or two ingredients do you think are most important in creating a successful corporate culture? As an outside shareholder, how might I be able to recognize those in businesses I’m studying for investment?
John Mackey: Right now we do have some organizations like 100 Best Companies to Work For. The Great Places to Work Institute is one filter that sifts through companies that obviously have great cultures.
And interestingly enough, they publish how their portfolio has done over the last 15 years since they started that list. It’s handily outperformed the S&P 500, and if you were to rebalance every year, meaning get rid of; if you just bought the original list and held it for 15 years, you’d have doubled the performance of the S&P 500, but if every year you take off the ones that drop out and you add the new ones that have come on, you rebalance so to speak. It’s a significant outperformance; I don’t have the figure right handy, but if you check it, I think it’s more like three to four times the outperformance.
So culture does matter, and the companies that have good cultures, they are great places to work. Generally, not always. It’s not a magical formula, but it’s a good indicator they’re well managed, and it does tend to lead to outperformance. It’s a good way to select stocks, in my opinion.
Gardner: I’ve said I think if you followed just one metric, if you had to blind yourself to everything else in companies and you were only able to follow the turnover rate of employees relative to competition in their category, because it’s not fair to compare a fast-food restaurant to a software company.
Gardner: But within their category, whichever organization is maintaining a great workplace, a place that people don’t want to leave. There’s a fine book entitled The Loyalty Effect by Fred Reicheld, and he really pretty convincingly presents that, but it’s not something that most investors, and certainly not what most brokers or folks on Wall Street are looking at when they’re evaluating a business for investment.
Mackey: Well they’re not oftentimes thinking long term when they’re doing those evaluations either. Another good indicator is there’s a list of ethical companies, and it turns out the companies that tend to be the most ethical and score well also outperform the indices as well. So that’s another good indicator. Companies that really concentrate on making sure that they’re ethical cultures, and cultures that are also great places to work, it kind of all links together. If you strive for excellence in the workplace, chances are good you’re striving for excellence in other aspects of your business as well.